Equity-focused houses in Europe suffered a miserable second quarter as investors withdrew €12 billion from equity funds amid a wobble in worldwide share prices.

Outflows from equity funds in June alone were €21 billion, contributing most of the €24 billion in net redemptions from all types of funds that month. That was nearly double the amount of net redemptions that were seen after 9/11, according to Feri Fund Market Information.

European equity and emerging markets were the hardest hit, representing two-thirds of the equity assets lost during the quarter. European equity funds had net redemptions of €4 billion and emerging markets funds lost €4.2 billion.

The outflows reverse a chunk of the sales gains in these sectors in the first quarter, when European equity enjoyed net inflows of €9.9 billion and emerging market equities attracted €19.2 billion as the advance of the Japanese, Chinese and Indian markets attracted investors.

By contrast, European sales of US equity funds, which have lagged other sectors for more than a year, were healthy in the second quarter at a net €3.8 billion.

Feri FMI believes the strong flows into US equities in April and May particularly were a temporary shift based on market sentiment and are a sign that investors are increasingly viewing funds in the same way that traders viewed shares.

Diana Mackay, managing director of Feri FMI, says: "Huge volatility is becoming apparent in European fund sales. The move into US equities was very short-term judging by the drop-off in June.

"Fund buying is increasingly of a professional nature - across Europe relatively little is based on individual choice. Most selection takes place via product re-packaging and buyers therefore look at short-term performance much in the same way that the Asian fund industry operates.

"As a fund manager, if you get it wrong you do not usually have the chance to repair the damage before the money flows out."

Equity sales in Europe were not the only casualties in the second quarter. Net fund sales overall were a meagre €36 billion, down from €75 billion in the same quarter last year. The second quarter is usually a bad time for funds, which typically see €10 billion in net outflows from money market funds as the French raise cash to pay their tax bills.

Nevertheless, thanks to a strong first quarter, year-to-date net sales, at €174 billion, are slightly up on sales of €166 billion in the same period last year.

At the national level, Italy and Germany had a particularly poor second quarter. Italy, which has seen net redemptions for the past 10 months while other markets reaped the benefit of the bull run that appeared to end in May, suffered a further €19.4 billion in redemptions, by far the worst of all European countries. As well as the negative market effect, Italian institutions have seen a drop in sales of in-house funds as they move to become sales outlets for other investment houses rather than carrying out the manufacturing themselves.

This has led to the increasing domination of fund manufacturing by the large cross-border groups such as JPMorgan Asset Management and Merrill Lynch Investment Managers.

Italian investors are also looking to government bonds and insurance products.

Italian fund houses complain they have the burden of having to report returns net of tax, whereas other groups can show gross returns. This, they say, puts them at a competitive disadvantage.

Germany had net redemptions of €6.1 billion as it too moves to an open architecture model that best suits the large and diverse product ranges of the cross-border groups.

But market psychology also played a part. "German investors who had bought into equities at the top of the 2000 bull market acted as the Dax returned to those highs and cut out," says Mackay.

The UK market, on the other hand, has proved more resilient to recent stock market volatility. It enjoyed net sales of €5.4 billion over the quarter, although the high exposure of UK portfolios to equities meant that net assets fell by €13.9 billion.

The inflows were mainly into real estate and bond funds, according to Feri FMI. The buoyant picture in the UK was helped by sales of individual savings accounts at the end of the tax year in April.

There are also structural reasons why the UK has weathered the storm. "There are a lot more regular savings in the UK and this lessens volatility," says Mackay. "In continental Europe, savers tend to make lump sum investments and on a more speculative basis."

The overall picture for Europe is the gloomiest for some time, and Feri FMI is able to identify few asset classes that investors appear to trust.

"There are very few rising sectors," says Mackay. "People don't like bonds or equities, so the whole total return idea is not holding up at the moment."

Even balanced funds, that use no benchmark and hold out the promise of absolute returns, were relatively unpopular in the second quarter after several quarters of rising sales.

The one sector that held up well was enhanced money maret funds, such as those offered by Invesco and JPMorgan AM.

Fund buyers poured €16.6 billion into these types of funds, which are perceived to have less risk than active equity funds and are designed to deliver better returns than pure money market funds.